Felix Salmon explains the situation:
How we got into this fine mess: For 37 years, the debt ceiling has provided an easy way for the party which isn’t in the White House to posture politically against the party which is in the White House. Even Barack Obama voted against raising it, once. Every one of the dozens of times the debt ceiling was reached, there was a small but non-zero probability that something disastrous would happen. And each time, disaster was, predictably, averted. It’s a classic sign of how tail risks are treacherous and breed invidious complacency. We’ve reached the debt ceiling dozens of times; nothing’s ever happened; so there’s nothing to worry about; so there’s no point expending precious political capital doing the right thing and abolishing it.
And now we’re paying the price. It’s increasingly looking like the best-case scenario is that America simply loses its triple-A credit rating….
The lion’s share of the blame here belongs with the Republicans in general, the House Republicans in particular, and the Tea Party caucus within the House Republicans most of all. But it’s not like these people’s existence or intransigence was any great secret. And so the White House tactics over the course of the past few months look dangerously naive….
The budget debate, of course, sets near-term taxation and spending. So seeking to make a virtue out of necessity, Treasury entered negotiations over the debt ceiling to do something longer-term: to put in place a decade-long “fiscal straitjacket” which would constrain future Democratic and Republican administrations alike…. Treasury’s bright idea backfired catastrophically. Far from putting the US on a course of long-term fiscal prudence, it put the country on a log raft with no paddle, careening straight towards a deathly waterfall…. [E]ngag[ing] the House Republicans on long-term fiscal issues was a silly idea — these are people who think you can raise revenues by cutting taxes. A fiscal straitjacket, necessarily, involves some mechanism for raising taxes; since that was always going to be anathema to the Republicans, there was no point even trying to construct one.
The cost of Treasury’s tactical mistake is going to be enormous. I don’t know how much choice Treasury had in the matter, of course: it’s possible that this particular debt-ceiling debate was going to come to tears no matter how the White House decided to approach it. But I can’t help but draw some kind of causal connection between Treasury’s oversized ambitions and the current mess. In any case, it’s a sunk cost at this point. And we’re all going to pay for it, dearly, in the years and decades to come.